The Real Deal New York

Welcome to the wild world of private citizens buying bad mortgages

Many who are self-taught by YouTube tutorials are tapping into the $135B market

November 21, 2018 09:45AM

(Credit: iStock)

Homeowners who had long stopped paying their mortgages are meeting a new type of debt collector: complete strangers who buy their mortgages, sometimes for as little as $1, and collect the remaining debt.

There is about $135 billion in unpaid mortgages on 800,000 nonperforming loans for single-family homes across the country, the majority of which originated in the lead up to the 2008 financial crisis, according to the Wall Street Journal.

This vast amount of unclaimed principal has prompted individuals, some of whom are self-taught by YouTube tutorials, to buy up mortgages and flip them into reperforming loans, or collect the remaining debt.

“Everybody and their brother is getting into the business,” Greg Paulus, a consultant for Chicago-based lender Urban Partnership Bank, told the Journal.

It’s risky — and hard — business. They’ll have to track down the borrowers, get them to pay and, in some cases, threaten foreclosure. If the borrower plays ball, they collect the debt or resell the mortgage. One Oregon-based mortgage buyer made $70,000 on a loan he purchased for a dollar. Another time, he lost $46,000 on a mortgage.

“You can do incredible returns in this business,” he told the Journal, “and you can lose your shirt, pants and everything else if you do it wrong.”

Wall Street is also getting in on the trend, with Goldman Sachs and Cerberus Capital both reportedly taking over delinquent loans. Citing market research by Fitch Ratings Inc., the outlet reported that investors resold over $15 billion of reperforming loans in residential mortgage-backed securities last year, three times that of 2016. [WSJ]— David Jeans